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Insurtech and Insurance Disruption

Part 1

Property and Casualty Insurance has been around for hundreds of years and has long been considered a business sector that clings to tradition and is slow to change. In many respects, being conservative can be positive. Insurance involves contracts with obligations due between three main parties, the policyholder, the company providing insurance protection and other parties that are owed compensation for damage or injury that are caused by policyholders. Modern economies have long been quite dependent upon a strong insurance sector to provide support to individuals and businesses that suffer accidental loss.

Another reason that insurance business has been slow to change is that it is highly regulated, answering to various requirements of state and federal authorities. Much of what is protected by insurance companies is tightly involved with public policy, taxes, various laws involving construction, zoning, public safety, investing, and other areas, so a change in how the personal and commercial insurance consumers are served can have wider ramifications.

A further reason for the slower pace of change in insurance is that the business models that it has developed over many decades have worked very well. When processes and methods work well, there is a natural resistance to embracing change, especially as change usually involves significant and new costs.

However, the insurance sector is now facing pressures that could be considered unprecedented. How insurance does business in the past was often directed by internal priorities, by regulations involving insurance rates and forms and by the actions of competitors that were similar in scope, structure and methods. The business environment in which insurers operate is facing substantial change and they will be forced to change with it. The elements that are forcing change are referred to as Insurtech and as Insurtech and disruptive innovation (aka disruption).

Please see part two of this article for a continuation of this discussion


COPYRIGHT: Insurance Publishing Plus, Inc. 2019

All rights reserved. Production or distribution, whether in whole or in part, in any form of media or language; and no matter what country, state or territory, is expressly forbidden without written consent of Insurance Publishing Plus, Inc.

 

Part 2

In part one of this discussion, we shared about the property and casualty insurance sector being both conservative and relatively slow to change, but that circumstances are different. In recent years, insurance has become increasing affected by the following:

  • Insurtech
  • Disruptive Innovation

Insurtech is a portmanteau, a new word formed by combining two other words, in this case "insurance" and "technology," it refers to applying technological innovations to create a more efficient and cheaper method to offer insurance products and services.

Disruptive innovation is a bit trickier to define. However, it strictly refers to a new business model or process that breaks up and significantly alters or replaces predecessors.

Insurance belongs to the larger world of financial services (banking and investment) and is now facing demands that it operate more like its financial relatives. Much of the demand has to do with the ongoing development of mobile technology and the Internet of Things, where more things are becoming connected and more accessible. Customers now have expectations that different service can and should be provided conveniently and far more quickly than in the past.

With regard to insurance, consumer demand is requiring that its service make more use of technology so it they can transact with insurance in the same manner they do in other areas, such as personal banking, travel and shopping. Pre-electronic age processes to do business are being shunned as, particularly younger consumers, have become used to nearly instantaneous response for goods and services.

Many insurers are, on an on-going basis, introducing more technology and automation to streamline all of their operating areas, including providing insurance quotes, creating and delivering policies, servicing policies, handling customer questions and adjusting losses. This is an expensive situation as many insurance companies have clung to much-older computer equipment and processes and changes have to be made by introducing totally new systems rather than the age-old method of incremental updates.

Disruptive innovation is a different and concurrent challenge. Improvements to existing technology and innovations have open the door to true disruptors. Insurance had traditionally been a very expensive business to enter, so much competition had been avoided. Smart technologies, connectivity and other factors are now allowing entrepreneurs from non-insurance background to consider entry into insurance. The big difference is that outsiders who are doing so do not have the operational blinders of traditional insurance companies. They are considering servicing various markets in ways that old-school insurers are blind to because their past experience filters how they approach the future.

New players in the insurance area come from a variety of areas including other financial services, online products shopping services, communications, search engine companies and travel services. New players are also leveraging their expertise in their native areas to develop niche products or to target special customer classes.

Now, traditional insurers must adjust how they operate in order to stave off challengers and to retain their relevancy. It’s what their customers expect…and demand.


COPYRIGHT: Insurance Publishing Plus, Inc. 2019

All rights reserved. Production or distribution, whether in whole or in part, in any form of media or language; and no matter what country, state or territory, is expressly forbidden without written consent of Insurance Publishing Plus, Inc.